Online traders no longer must wait for the check from a stock sale to arrive in the mail. Once you close out a trade, the proceeds are credited instantly to your trading account. But if you want to immediately transfer the proceeds to a bank account, you must contend with the mandatory three-day wait as your broker complies with a rule known as Regulation T.
Sell and Transfer Funds
If you're ready to sell some stocks, log in to your online brokerage account and open your trading window. Review your current stock holdings and select the positions you feel are ready to close out.
If you have not done so already, make sure you have linked your bank account to your trading account. You will not be allowed to transfer money until your brokerage firm verifies the bank account ownership. This may take some time and may require you to verify small deposits made to your bank account. You'll generally need to provide your bank account routing and account numbers to the brokerage, which you can get from the bank or read off of a check.
Verify It's Worth Selling
It's beneficial to do some double-checking before buying or selling stock. Open a chart window and enter the first stock symbol on your potential close list. Use indicators to help determine if the trend is stalling or if the stock still has room to rise. Scan the headlines, news events and company announcements for anything that might affect the stock’s value. Take all factors into account before making a decision.
Go to your order entry window and enter the stock symbol, the number of shares and the action to close the position. Use a market order to immediately close the trade or enter a limit order if you think the market will give you a better fill price. After receiving the trade completion notice, check your account balance to ensure the proceeds have been credited to your account.
You'll generally face a mandatory waiting time before you can initiate a funds transfer to your bank account. All trading firms must follow Regulation T, enacted by the Securities and Exchange Commission, which mandates a three-day waiting period. During this time, you are not allowed to use those proceeds to open a new trade or move the funds from one account to another. Many brokerage firms have a software program in place that automatically freezes the proceeds for three days.
The SEC enacted Regulation T to prevent a practice called freeriding, where you essentially buy and sell a stock before you've actually had to pay for it. Traders were using their cash accounts as margin accounts by buying shares and selling them two or three days later. They paid for the shares with the sale proceeds instead of paying for the shares when purchased. Cash traders caught freeriding have their accounts frozen for 90 days.
Transferring to the Bank
There are often multiple ways to transfer the money from your brokerage account to the bank once the waiting period is over. These can include automated clearing house, or ACH transfers, wire transfers and receiving a paper check in the mail.
Wire transfers are usually faster than ACH transfers, but you may have to pay a fee for the service.
You generally can use the same procedures to transfer money from your bank to your brokerage account if you want to buy stock.
- ACH bank transfers take about three days to complete. If you need your money immediately, use a wire transfer to receive your funds the same day.
- The SEC enacted Regulation T to prevent free-riding. Traders were using their cash accounts as margin accounts by buying shares and selling them two or three days later. They paid for the shares with the sale proceeds instead of paying for the shares when purchased. Cash traders caught free-riding can count on their account being frozen for 90 days.
Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.